1. Field of the Invention
The present invention relates generally to auctions.
2. Description of the Related Art
Auctions, whether conducted online over the Internet or in person, have emerged as an increasingly popular forum for efficiently buying and selling goods and services. Two principal forms of auctions include the so-called Dutch auction and the so-called English auction. A Dutch seller's auction is illustrated in FIG. 1 whereas an English seller's auction is shown in FIG. 2. The phrase “seller's auction” means that one or more sellers are offering to sell an item (which may include goods, services or anything of value) to one or more buyers. The seller's objective is to maximize the price at which the item is sold. The phrase “buyer's auction”, in contrast, refers to auctions sponsored by one or more buyers in which the buyers are offering to purchase an item from one or more sellers. The buyers' objective is to minimize the price to be paid for the item.
FIG. 1 is a graph of the seller's asking prices and bids from one of the buyers over time. As shown therein, a seed price is set by the seller, the seed price representing the initial asking price for the item to be auctioned. In a Dutch auction, the asking price decreases by a predetermined amount over time, starting from the seed price. Tied to a clock, the asking price decreases until one of the buyers stops the clock and bids at the then current asking price. In a Dutch seller's auction, the first buyer to bid at the current asking price is awarded the item. If the asking price falls below a predetermined secret reserve level set by the seller, the auction may be cancelled.
Turning now to FIG. 2, an English seller's auction operates in the reverse manner. As shown, a seed price is set by the seller. In English seller's auctions, the seed price (initial asking price) may be set below the seller's reserve price, with the expectation that the bidding momentum will carry the price above the reserve price during the course of the auction. In an English seller's auction, buyers compete with one another and bid the price of the auctioned item ever higher until no other buyers are willing to bid higher than the last bid placed. The highest and last bid placed wins. That is, the buyer having placed the last bid is awarded the item that is the subject of the auction and must pay the seller the amount of the winning bid.
Whatever the format, all auctions are concerned with securing the maximum price for the seller and the minimum price for the buyer, although both objectives may not be met in the same auction. However, when the buyer having placed the winning bid, whether in a Dutch or English auction, later believes that he or she may have overpaid for the item, there is an increased risk of default on the part of the buyer, especially in a decreasing market for such goods. This is inefficient and vastly increases the seller's transactional costs for selling the item. Similar problems exist with buyer's auctions, as the seller may default and refuse to honor its obligation to sell the item at a price equal to the seller's winning bid (as may occur in a rising market for such goods). Rules of given auctions are often adjusted to address these problems, but no single solution has yet emerged that provides both buyer and seller with an optimum forum for buying and selling goods and services.